Term sheet
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Term Sheet to
Product Supplement No. 166-A-I Registration Statement No. 333-155535 Dated June 9, 2009; Rule 433 |
Structured |
$ Return Enhanced Notes Linked to a Weighted Basket Consisting of the Hang Seng China Enterprises Index, the Hang Seng® Index, the Korea Stock Price Index 200, the MSCI Singapore Index and the MSCI Taiwan Index, Each Converted into U.S. Dollars, due June 30, 2010 |
General
Key Terms
Basket: |
The notes are linked to a weighted basket of five Basket Indices, each converted into U.S. dollars, consisting of the Hang Seng China Enterprises Index (HSCEI), the Hang Seng® Index (HSI), the Korea Stock Price Index 200 (KOSPI2), the MSCI Singapore Index (SGY) and the MSCI Taiwan Index (TWY) (each a Basket Index, and together, the Basket Indices). For information about the Basket Indices, the Underlying Currencies and the Index Weightings, see Additional Key Terms on page TS-1 of this term sheet. |
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Upside Leverage Factor: |
3 |
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Payment at Maturity: |
If the Ending Basket Level is greater than the Starting Basket Level, you will receive a cash payment that provides you with a return per $1,000 principal amount note equal to the Basket Return multiplied by three, subject to a Maximum Total Return on the notes of 29.25%*. For example, if the Basket Return is more than 9.75%, you will receive the Maximum Total Return on the notes of 29.25%*, which entitles you to the maximum payment of $1,292.50* at maturity for every $1,000 principal amount note that you hold. Accordingly, if the Basket Return is positive, your payment at maturity per $1,000 principal amount note will be calculated as follows, subject to the Maximum Total Return: |
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$1,000 + [$1,000 x (Basket Return x 3)] |
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* |
The actual Maximum Total Return on the notes and the actual maximum payment at maturity will be set on the pricing date and will not be less than 29.25% and $1,292.50 per $1,000 principal amount note, respectively. |
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Your investment will be fully exposed to any decline in the Basket at maturity. If the Ending Basket Level declines from the Starting Basket Level, you will lose 1% of the principal amount of your notes for every 1% that the Ending Basket Level declines beyond the Initial Basket Level. Accordingly, if the Basket Return is negative, your payment at maturity per $1,000 principal amount note will be calculated as follows: |
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$1,000 + ($1,000 x Basket Return) |
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You will lose some or all of your investment at maturity if the Ending Basket Level declines from the Starting Basket Level. If the value of the U.S. dollar appreciates against the Underlying Currencies, you may lose some or all of your investment in the notes, even if the closing levels of the Basket Indices have increased during the term of the notes. |
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Basket Return: |
The performance of the Basket from the Starting Basket Level to the Ending Basket Level, calculated as follows: |
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Ending
Basket Level Starting Basket Level |
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Starting Basket Level: |
Set equal to 100 on the pricing date. |
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Ending Basket Level: |
The arithmetic average of the Basket Closing Levels on the five Ending Averaging Dates. |
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Basket Closing Level: |
For each of the Ending Averaging Dates, the Basket Closing Level will be calculated as follows: |
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100 x [1 + ((Hang Seng China Enterprises Return * Hang Seng China Enterprises Weighting) + (Hang Seng Return * Hang Seng Weighting) + (KOSPI 200 Return * KOSPI 200 Weighting) + (MSCI Singapore Return * MSCI Singapore Weighting) + (MSCI Taiwan Return * MSCI Taiwan Weighting))] Each of the returns set forth in the formula above refers to the Index Return for the relevant Basket Index. |
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Index Return: |
With respect to each Basket Index, on any trading day: Index Closing Level
Index Starting Level |
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Index Starting Level: |
With respect to a Basket Index, the Adjusted Closing Level of such Basket Index on the pricing date. |
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Index Closing Level: |
With respect to a Basket Index on any trading day, the Adjusted Closing Level of such Basket Index on such trading day. |
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Adjusted Closing Level: |
With respect to a Basket Index on any trading day, the closing level of such Basket Index on such trading day multiplied by the Exchange Rate of such Basket Index on such trading day. |
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Exchange Rate: |
With respect to each Basket Index, the Exchange Rate on any trading day will be the spot rate or, with respect to the Korea Stock Price Index 200, the market average rate, in the interbank market of U.S. dollars per one unit of the Underlying Currency of such Basket Index, as determined by the Calculation Agent, expressed as one divided by the amount of Underlying Currency of such Basket Index per U.S. dollar, as reported by Reuters Group PLC (Reuters) on the relevant page at approximately the applicable time. |
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For more information on the Exchange Rate and applicable time for each Underlying Currency, see Additional Key Terms on page TS-1 of this term sheet. |
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Ending Averaging Dates: |
June 21, 2010, June 22, 2010, June 23, 2010, June 24, 2010 and June 25, 2010 |
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Maturity Date: |
June 30, 2010 |
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CUSIP: |
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Subject to postponement in the event of a market disruption event or a currency disruption event and as described under Description of Notes Payment at Maturity in the accompanying product supplement no. 166-A-I. |
Investing in the Return Enhanced Notes involves a number of risks. See Risk Factors beginning on page PS-8 of the accompanying product supplement no. 166-A-I and Selected Risk Considerations beginning on page TS-4 of this term sheet.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the notes or passed upon the accuracy or the adequacy of this term sheet or the accompanying prospectus supplement and prospectus. Any representation to the contrary is a criminal offense.
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Price to Public (1) |
Fees and Commissions (2) |
Proceeds to Us |
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Per note |
$ |
$ |
$ |
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Total |
$ |
$ |
$ |
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(1) |
The price to the public includes the cost of hedging our obligations under the notes through one or more of our affiliates, which includes our affiliates expected cost of providing such hedge as well as the profit our affiliates expect to realize in consideration for assuming the risks inherent in providing such hedge. For additional related information, please see Use of Proceeds beginning on page PS-19 of the accompanying product supplement no. 166-A-II. |
(2) |
Please see Supplemental Plan of Distribution in this term sheet for information about fees and commissions. |
The notes are not bank deposits and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency, nor are they obligations of, or guaranteed by, a bank. The notes are not guaranteed under the Federal Deposit Insurance Corporations Temporary Liquidity Guarantee Program.
June 9, 2009
JPMorgan Chase & Co. has filed a registration statement (including a prospectus) with the Securities and Exchange Commission, or SEC, for the offering to which this term sheet relates. Before you invest, you should read the prospectus in that registration statement and the other documents relating to this offering that JPMorgan Chase & Co. has filed with the SEC for more complete information about JPMorgan Chase & Co. and this offering. You may get these documents without cost by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, JPMorgan Chase & Co., any agent or any dealer participating in this offering will arrange to send you the prospectus, the prospectus supplement, product supplement no. 166-A-I and this term sheet if you so request by calling toll-free 866-535-9248.
You may revoke your offer to purchase the notes at any time prior to the time at which we accept such offer by notifying the applicable agent. We reserve the right to change the terms of, or reject any offer to purchase, the notes prior to their issuance. In the event of any changes to the terms of the notes, we will notify you and you will be asked to accept such changes in connection with your purchase. You may also choose to reject such changes in which case we may reject your offer to purchase.
You should read this term sheet together with the prospectus dated November 21, 2008, as supplemented by the prospectus supplement dated November 21, 2008 relating to our Series E medium-term notes of which these notes are a part, and the more detailed information contained in product supplement no. 166-A-I dated June 9, 2009. This term sheet, together with the documents listed below, contains the terms of the notes and supersedes all other prior or contemporaneous oral statements as well as any other written materials including preliminary or indicative pricing terms, correspondence, trade ideas, structures for implementation, sample structures, fact sheets, brochures or other educational materials of ours. You should carefully consider, among other things, the matters set forth in Risk Factors in the accompanying product supplement no. 166-A-I, as the notes involve risks not associated with conventional debt securities. We urge you to consult your investment, legal, tax, accounting and other advisers before you invest in the notes.
You may access these documents on the SEC website at www.sec.gov as follows (or if such address has changed, by reviewing our filings for the relevant date on the SEC website):
Product
supplement no. 166-A-I dated June 9, 2009:
http://www.sec.gov/Archives/edgar/data/19617/000089109209002336/e35646_424b2.pdf
Prospectus supplement dated November 21, 2008:
http://www.sec.gov/Archives/edgar/data/19617/000089109208005661/e33600_424b2.pdf
Our Central Index Key, or CIK, on the SEC website is 19617. As used in this term sheet, the Company, we, us or our refers to JPMorgan Chase & Co.
Additional Key Terms
The following table sets forth the Basket Indices, the Underlying Currencies, the Exchange Rate for each Underlying Currency, the applicable Reuters Page and the weighting of each Underlying Currency:
Basket Index
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Underlying
Currency |
Reuters Page
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Applicable
Time* |
Exchange
Rate on the pricing date |
Closing level of the
Basket Index on the pricing date |
Index Starting
Level |
Percentage
Weight of Basket (Index Weighting) |
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Hang Seng China Enterprises Index |
Hong Kong dollar |
HKDFIX |
11:15 a.m. |
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34.00% |
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Hang Seng® Index |
Hong Kong dollar |
HKDFIX |
11:15 a.m. |
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15.00% |
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Korea Stock Price Index 200 |
Korean won |
KFTC18 |
3:00 p.m. |
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21.00% |
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MSCI Singapore Index |
Singapore dollar |
ABSIRFIX01 |
11:00 a.m. |
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8.00% |
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MSCI Taiwan Index |
New Taiwan dollar |
TAIFX1 |
11:00 a.m. |
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22.00% |
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The Exchange Rate and closing level on the pricing date and the Index Starting Level of each Basket Index will be determined on the pricing date.
*Each applicable time refers to the local time of the applicable currency (the local time of Hong Kong with respect to the Hong Kong dollar, the local time of Seoul, Korea with respect to the Korean won, the local time of Singapore with respect to the Singapore dollar and the local time of Taipei Taiwan with respect to the New Taiwan dollar).
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JPMorgan
Structured Investments |
TS-1 |
The following table, graph and examples illustrate the hypothetical total return at maturity on the notes. The total return as used in this term sheet is the number, expressed as a percentage, that results from comparing the payment at maturity per $1,000 principal amount note to $1,000. The hypothetical total returns set forth below assume a Maximum Total Return on the notes of 29.25%. The hypothetical total returns set forth below are for illustrative purposes only and may not be the actual total returns applicable to a purchaser of the notes. The numbers appearing in the following table, graph and examples have been rounded for ease of analysis.
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Ending Basket |
Basket Return |
Total Return |
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180.00 |
80.00% |
29.25% |
165.00 |
65.00% |
29.25% |
150.00 |
50.00% |
29.25% |
140.00 |
40.00% |
29.25% |
130.00 |
30.00% |
29.25% |
120.00 |
20.00% |
29.25% |
115.00 |
15.00% |
29.25% |
110.00 |
10.00% |
29.25% |
109.75 |
9.75% |
29.25% |
105.00 |
5.00% |
15.00% |
102.50 |
2.50% |
7.50% |
101.00 |
1.00% |
3.00% |
100.00 |
0.00% |
0.00% |
95.00 |
-5.00% |
-5.00% |
90.00 |
-10.00% |
-10.00% |
80.00 |
-20.00% |
-20.00% |
70.00 |
-30.00% |
-30.00% |
60.00 |
-40.00% |
-40.00% |
50.00 |
-50.00% |
-50.00% |
40.00 |
-60.00% |
-60.00% |
30.00 |
-70.00% |
-70.00% |
20.00 |
-80.00% |
-80.00% |
10.00 |
-90.00% |
-90.00% |
0.00 |
-100.00% |
-100.00% |
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JPMorgan
Structured Investments |
TS-2 |
The following examples illustrate how the total returns set forth in the table on the previous page and the graph above are calculated.
Example 1: The level of the Basket
increases from a Starting Basket Level of 100 to an Ending Basket Level of 105.
Because the Ending Basket Level of 105
is greater than the Starting Basket Level of 100 and the Basket Return of 5%
multiplied by 3 does not exceed the hypothetical Maximum Total Return of 29.25%,
the investor receives a payment at maturity of $1,150 per $1,000 principal
amount note, calculated as follows:
$1,000 + [$1,000 x (5% x 3)] = $1,150
Example 2: The level of the Basket
increases from a Starting Basket Level of 100 to an Ending Basket Level of 120.
Because the Ending Basket Level of 120
is greater than the Starting Basket Level of 100 and the Basket Return of 20%
multiplied by 3 exceeds the hypothetical Maximum Total Return of 29.25%, the
investor receives a payment at maturity of $1,292.50 per $1,000 principal
amount note, the maximum payment on the notes.
Example 3: The level of the Basket
decreases from a Starting Basket Level of 100 to an Ending Basket Level of 80.
Because the Basket Return is negative
and the Ending Basket Level of 80 is less than the Starting Basket Level of 100,
the Basket Return is negative and the investor receives a payment at maturity
of $800 per $1,000 principal amount note, calculated as follows:
$1,000 + ($1,000 x -20%) = $800
Hypothetical Examples of Index Return Calculations
The following examples illustrate how the Index Return for a hypothetical Basket Index is calculated in different scenarios. The examples below assume that the closing level of the hypothetical Basket Index on the pricing date is 100, the Exchange Rate for the hypothetical Basket Index on the pricing date is 2.50 and, therefore, the Index Starting Level for the hypothetical Basket Index is 250. The examples below also assume that the Index Closing Level for the hypothetical Basket Index is based on the Adjusted Closing Level of the hypothetical Basket Index on a single date, which we refer to as the final Ending Averaging Date. The hypothetical Index Returns set forth below are for illustrative purposes only and may not be the actual Index Returns applicable to an actual Basket Index. The numbers appearing in the following examples have been rounded for ease of analysis.
Example 1: The closing level of the
Basket Index increases from 100 on the pricing date to 110 on the final Ending
Averaging Date, and the Exchange Rate of the Basket Index remains flat at 2.50
from the pricing date to the final Ending Averaging Date.
The Index Closing Level of the Basket
Index is equal to:
110 x 2.50 = 275
Because the Index Closing Level of 275 is greater than the Index Starting Level of 250, the Index Return is positive and is equal to 10%.
Example 2: The closing level of the
Basket Index remains flat at 100 from the pricing date to the final Ending
Averaging Date, and the Exchange Rate of the Basket Index increases from 2.50
on the pricing date to 3.00 on the final Ending Averaging Date.
The Index Closing Level of the Basket
Index is equal to:
100 x 3.00 = 300
Because the Index Closing Level of 300 is greater than the Index Starting Level of 250, the Index Return is positive and is equal to 20%.
Example 3: The closing level of the
Basket Index increases from 100 on the pricing date to 110 on the final Ending
Averaging Date, and the Exchange Rate of the Basket Index increases from 2.50
on the pricing date to 3.00 on the final Ending Averaging Date.
The Index Closing Level of the Basket
Index is equal to:
110 x 3.00 = 330
Because the Index Closing Level of 330 is greater than the Index Starting Level of 250, the Index Return is positive and is equal to 32%.
Example 4: The closing level of the
Basket Index increases from 100 on the pricing date to 110 on the final Ending
Averaging Date, but the Exchange Rate of the Basket Index decreases from 2.50
on the pricing date to 2.00 on the final Ending Averaging Date.
The Index Closing Level of the Basket
Index is equal to:
110 x 2.00 = 220
Even though the closing level of the Basket Index has increased by 10%, because the Exchange Rate of the Basket Index has decreased by 20%, the Index Closing Level of 220 is less than the Index Starting Level of 250, the Index Return is negative and is equal to -12%.
Example 5: The closing level of the
Basket Index decreases from 100 on the pricing date to 90 on the final Ending
Averaging Date, but the Exchange Rate of the Basket Index increases from 2.50
on the pricing date to 3.00 on the final Ending Averaging Date.
The Index Closing Level of the Basket
Index is equal to:
90 x 3.00 = 270
Even though the closing level of the Basket Index has decreased by 10%, because the Exchange Rate of the Basket Index has increased by 20%, the Index Closing Level of 270 is greater than the Index Starting Level of 250, the Index Return is positive and is equal to 8%.
Example 6: The closing level of the
Basket Index decreases from 100 on the pricing date to 90 on the final Ending
Averaging Date, and the Exchange Rate of the Basket Index decreases from 2.50
on the pricing date to 2.00 on the final Ending Averaging Date.
The Index Closing Level of the Basket
Index is equal to:
90 x 2.00 = 180
Because the Index Closing Level of 180 is less than the Index Starting Level of 250, the Index Return is negative and is equal to -28%.
Example 7: The closing level of the
Basket Index remains flat at 100 from the pricing date to the final Ending
Averaging Date, and the Exchange Rate of the Basket Index decreases from 2.50
on the pricing date to 2.00 on the final Ending Averaging Date.
The Index Closing Level of the Basket
Index is equal to:
100 x 2.00 = 200
Because the Index Closing Level of 200 is less than the Index Starting Level of 250, the Index Return is negative and is equal to -20%.
Example 8: The closing level of the
Basket Index decreases from 100 on the pricing date to 90 on the final Ending
Averaging Date, and the Exchange Rate of the Basket Index remains flat at 2.50
from the pricing date to the final Ending Averaging Date.
The Index Closing Level of the Basket
Index is equal to:
90 x 2.50 = 225
Because the Index Closing Level of 225 is less than the Index Starting Level of 250, the Index Return is negative and is equal to -10%.
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JPMorgan
Structured Investments |
TS-3 |
Subject to certain assumptions and representations received from us, the discussion in the preceding paragraph, when read in combination with the section entitled Certain U.S. Federal Income Tax Consequences in the accompanying product supplement, constitutes the full opinion of Davis Polk & Wardwell regarding the material U.S. federal income tax treatment of owning and disposing of notes.
Selected Risk Considerations
An investment in the notes involves significant risks. Investing in the notes is not equivalent to investing directly in the Basket, the Basket Indices or any of the equity securities underlying the Basket Indices. These risks are explained in more detail in the Risk Factors section of the accompanying product supplement no. 166-A-I dated June 9, 2009.
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JPMorgan
Structured Investments |
TS-4 |
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JPMorgan
Structured Investments |
TS-5 |
Historical Information
The following graphs show the historical weekly performance of each Basket Index as well as the Basket as a whole from January 2, 2004 through June 5, 2009. The closing level of the Hang Seng China Enterprises Index on June 8, 2009 was 10,667.90. The closing level of the Hang Seng® Index on June 8, 2009 was 18,253.40. The closing level of the Korea Stock Price Index 200 on June 8, 2009 was 177.67. The closing level of the MSCI Singapore Index on June 8, 2009 was 283.22. The closing level of the MSCI Taiwan Index on June 8, 2009 was 241.37.
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JPMorgan
Structured Investments |
TS-6 |
The next four graphs below show the historical weekly performance of each Underlying Currency expressed in terms of the conventional market quotation, as shown on Bloomberg Financial Markets (which is the amount of the applicable Underlying Currency that can be exchanged for one U.S. Dollar) from January 2, 2004 through June 5, 2009. The exchange rates of the Hong Kong dollar, the Korean won, the Singapore dollar and the Taiwan dollar, at approximately their respective applicable times (see Additional Key Terms on page TS-1 for more details) on June 8, 2009, were 7.7515, 1252.4000, 283.2200 and 32.8700 respectively.
The exchange rates displayed in the graphs below are for illustrative purposes only and do not form part of the calculation of the Basket Return. The value of the Basket, and thus the Basket Return, assuming no change in the closing levels of the Basket Indices, increases when the U.S. Dollar depreciates in value against the individual Underlying Currencies. Therefore, the Basket Return is calculated using the Exchange Rates for each Underlying Currency expressed as one divided by the amount of Underlying Currency per one U.S. Dollar, which is the inverse of the conventional market quotation for each such Underlying Currency set forth in the applicable graphs below.
The final graph below shows the historical weekly Basket performance from January 2, 2004 through June 5, 2009, assuming the Basket Closing Level on January 2, 2004 was 100, the Index Weightings specified under Additional Key Terms on page TS-1 of this term sheet and that the closing spot rates (local time) of each Underlying Currency on the relevant dates were the Exchange Rates on such dates. The closing spot rates and the historical weekly Basket performance data in such graph were determined by dividing one by the rates reported by Bloomberg Financial Markets and may not be indicative of the Basket performance using the spot rates (or with respect to the Korean Won, the market average rate) of the Underlying Currencies at approximately their respective applicable times that would be derived from the applicable Reuters page.
The Exchange Rates of the Hong Kong dollar, the Korean won, the Singapore dollar and the New Taiwan dollar, at approximately their respective applicable times (see Additional Key Terms on page TS-1 for more details) on June 8, 2009, were 0.12900, 0.00079, 0.68493 and 0.03035, respectively, calculated in the manner set forth under Key Terms Exchange Rates on the front cover of this term sheet.
We obtained the Basket Index closing levels and spot rates needed to construct the graphs from Bloomberg Financial Markets, and we obtained the exchange rates and denominators used to calculate the Exchange Rates from Reuters Group PLC. We make no representation or warranty as to the accuracy or completeness of the information obtained from Bloomberg Financial Markets or Reuters Group PLC. The historical performance of each Basket Index, each Underlying Currency and the Basket should not be taken as an indication of future performance, and no assurance can be given as to the closing level of any of the Basket Indices or the Exchange Rate of any of the Underlying Currencies on the pricing date or any Ending Averaging Date. We cannot give you assurance that the performance of the Basket Indices and the Exchange Rates will result in the return of any of your initial investment.
Supplemental Plan of Distribution
JPMSI, acting as agent for JPMorgan Chase & Co., will receive a commission that will depend on market conditions on the pricing date. In no event will that commission exceed $10.00 per $1,000 principal amount note. See Plan of Distribution beginning on page PS-63 of the accompanying product supplement no. 166-A-I.
For a different portion of the notes to be sold in this offering, an affiliated bank will receive a fee and another affiliate of ours will receive a structuring and development fee. In no event will the total amount of these fees exceed $10.00 per $1,000 principal amount note.
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JPMorgan
Structured Investments |
TS-7 |